Catherine Rampell correctly points out that the Donald Trump Republicans want a nanny state, going through various ways in which they want government to intervene in people’s lives and the economy to make life better for them. You can add some important items that Rampell left out, like stronger and longer copyright and patent monopolies, to redistribute money from people who work to people who own patents and copyrights. They also seem fine with the protectionist barriers that keep our doctors and other highly paid professionals from having to compete with their lower paid counterparts in the developing world or even Western Europe. But she does get one item badly wrong.
Rampell lists breaking up the big banks as an intervention. Actually the opposite is the case.
The reason to break up the big banks is that if their highly paid CEOs push them into bankruptcy through incompetence, the government will invariably bail out them out. The Treasury and/or Fed will give them money at below market interest rates to ensure they survive. Such bailouts will almost certainly always get political support because folks like Rampell’s employers at the Washington Post will furiously denounce anyone who doesn’t support saving the big banks. The opponents will be called all sorts of names and face bleak political prospects if they don’t come through with the money for Wall Street.
Since market actors know that the big banks will be bailed out by the government if they get in trouble the banks can borrow at a lower cost than smaller competitors in the same financial situation. This amounts to a government subsidy to their top executives and shareholders. The I.M.F. and others have estimated the size of this subsidy as being between $25 billion and $50 billion a year. That is not a free market.
Catherine Rampell correctly points out that the Donald Trump Republicans want a nanny state, going through various ways in which they want government to intervene in people’s lives and the economy to make life better for them. You can add some important items that Rampell left out, like stronger and longer copyright and patent monopolies, to redistribute money from people who work to people who own patents and copyrights. They also seem fine with the protectionist barriers that keep our doctors and other highly paid professionals from having to compete with their lower paid counterparts in the developing world or even Western Europe. But she does get one item badly wrong.
Rampell lists breaking up the big banks as an intervention. Actually the opposite is the case.
The reason to break up the big banks is that if their highly paid CEOs push them into bankruptcy through incompetence, the government will invariably bail out them out. The Treasury and/or Fed will give them money at below market interest rates to ensure they survive. Such bailouts will almost certainly always get political support because folks like Rampell’s employers at the Washington Post will furiously denounce anyone who doesn’t support saving the big banks. The opponents will be called all sorts of names and face bleak political prospects if they don’t come through with the money for Wall Street.
Since market actors know that the big banks will be bailed out by the government if they get in trouble the banks can borrow at a lower cost than smaller competitors in the same financial situation. This amounts to a government subsidy to their top executives and shareholders. The I.M.F. and others have estimated the size of this subsidy as being between $25 billion and $50 billion a year. That is not a free market.
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No, that is not some new concession that the Speaker made to appease Donald Trump, this is his budget wonkiness. According to the analysis of Ryan’s budget by the Congressional Budget Office, he would reduce the non-Social Security, non-Medicare portion of the federal budget, shrinking it to 3.5 percent of GDP by 2050 (page 16).
This number is roughly equal to current spending on the military. Ryan has indicated that he does not want to see the military budget cut to any substantial degree. That leaves no money for the Food and Drug Administration, the National Institutes of Health, The Justice Department, infrastructure spending or anything else. Following Ryan’s plan, in 35 years we would have nothing left over after paying for the military.
As I have pointed out here in the past, this was not some offhanded gaffe where Ryan might have misspoke. He supervised the CBO analysis. CBO doesn’t write-down numbers in a dark corner and then throw them up on their website to embarrass powerful members of Congress. As the document makes clear, they consulted with Ryan in writing the analysis to make sure that they were accurately capturing his program.
For some reason, the media refuse to give Mr. Ryan credit for the position he has openly embraced. The NYT followed this pattern in its editorial implying that Mr. Ryan had compromised his respectable wonkiness in his endorsement of Donald Trump. Ryan has made his career by arguing an extreme position that is far to the right of even most of the Republican party. It is long past time that the media take seriously the position he is advocating.
No, that is not some new concession that the Speaker made to appease Donald Trump, this is his budget wonkiness. According to the analysis of Ryan’s budget by the Congressional Budget Office, he would reduce the non-Social Security, non-Medicare portion of the federal budget, shrinking it to 3.5 percent of GDP by 2050 (page 16).
This number is roughly equal to current spending on the military. Ryan has indicated that he does not want to see the military budget cut to any substantial degree. That leaves no money for the Food and Drug Administration, the National Institutes of Health, The Justice Department, infrastructure spending or anything else. Following Ryan’s plan, in 35 years we would have nothing left over after paying for the military.
As I have pointed out here in the past, this was not some offhanded gaffe where Ryan might have misspoke. He supervised the CBO analysis. CBO doesn’t write-down numbers in a dark corner and then throw them up on their website to embarrass powerful members of Congress. As the document makes clear, they consulted with Ryan in writing the analysis to make sure that they were accurately capturing his program.
For some reason, the media refuse to give Mr. Ryan credit for the position he has openly embraced. The NYT followed this pattern in its editorial implying that Mr. Ryan had compromised his respectable wonkiness in his endorsement of Donald Trump. Ryan has made his career by arguing an extreme position that is far to the right of even most of the Republican party. It is long past time that the media take seriously the position he is advocating.
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There have been many pieces in the media noting that the Republican platform calls for restoring Glass-Steagall and arguing that this is stealing an item from Elizabeth Warren’s agenda. While the Republican proposal would presumably restore the separation of investment banks from commercial banks that take government guaranteed deposits, the 21st Century Glass-Steagall Act being pushed by Senator Warren goes well beyond this.
Most importantly, the act would change the priority given to derivatives in bankruptcy. As current law is written, various derivative instruments have priority in bankruptcy proceedings over other liabilities. This allowed non-bank institutions like Lehman to continue to carry through normal business even as their financial situation was deteriorating due to bad mortgage debt. By taking away the priority for derivative contracts, market actors would have serious incentive to evaluate the financial situation of an institution like Lehman. This would likely prevent it from developing the same sort of massive uncovered liabilities that Lehman did in the housing bubble years.
There have been many pieces in the media noting that the Republican platform calls for restoring Glass-Steagall and arguing that this is stealing an item from Elizabeth Warren’s agenda. While the Republican proposal would presumably restore the separation of investment banks from commercial banks that take government guaranteed deposits, the 21st Century Glass-Steagall Act being pushed by Senator Warren goes well beyond this.
Most importantly, the act would change the priority given to derivatives in bankruptcy. As current law is written, various derivative instruments have priority in bankruptcy proceedings over other liabilities. This allowed non-bank institutions like Lehman to continue to carry through normal business even as their financial situation was deteriorating due to bad mortgage debt. By taking away the priority for derivative contracts, market actors would have serious incentive to evaluate the financial situation of an institution like Lehman. This would likely prevent it from developing the same sort of massive uncovered liabilities that Lehman did in the housing bubble years.
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See, it’s all very simple. If a father pays his kid $10 to mow his lawn, no one expects the kid to pay Social Security taxes on the money. It’s the exact same thing when people work 40 hours a week for an employer, why would we expect them to pay Social Security taxes on their wages?
That is the nature of the argument Steven B. Klinsky, the founder and chief executive officer of the private equity firm New Mountain Capital, gave in a NYT column in defense of the carried interest deduction. This deduction allows hedge fund and private equity fund mangers to pay taxes at the capital gains tax rate (20 percent) instead of the 39.6 percent tax rate they would pay on normal income.
Klinsky argues that this carried interest loophole really is no loophole at all:
“Let’s say a father and a son go into business together to buy the local lawn mowing company for $1,000. The father puts up the money and the son does all the work of having the idea, managing the partnership and so on. They agree to split the partnership’s future profit 80 percent for the father (as the passive, money limited partner) and 20 percent for the son (as the active, hands-on general partner). If years later, the partnership is sold for a profit, there would be long-term capital gain on that profit. The father would own 80 percent of the profit and pay 80 percent of the capital gains taxes. The son would own 20 percent of the profit and pay 20 percent of the capital gains taxes.”
See, when folks like Mitt Romney and Peter Peterson get hundreds of millions of dollars a year from their earnings as private equity fund managers it’s just the same as kid who goes into business with his father. There’s no reason these people should be taxed like ordinary workers.
As a practical matter, the relevant examples here are realtors, car salespeople, and other workers who get paid on a commission. In all these cases, workers’ pay depends on the profit to the owner of the business or the customer. In all of these cases, workers are taxed on their commissions in exactly the same way that other workers are taxed on salaries. This is really not a tough call. There is no reason for the I.R.S. to give workers a tax break just because they are paid on commission.
Apparently, Klinsky thinks that the rules that apply to ordinary workers shouldn’t apply to the very rich people who run private equity and hedge funds. At least, that is the only thing that we can reasonably infer from his argument.
Of course, the son in his case should, in principle, have to pay normal taxes on the earnings from his labor just as the kid mowing his dad’s lawn should in principle pay Social Security tax on his $10. However, because trivial sums are involved and the enforcement issue would be extremely difficult, we don’t worry about these cases. When some of the richest people in the country can get away with paying a lower tax rate than a school teacher or firefighter, it is something worth worrying about.
See, it’s all very simple. If a father pays his kid $10 to mow his lawn, no one expects the kid to pay Social Security taxes on the money. It’s the exact same thing when people work 40 hours a week for an employer, why would we expect them to pay Social Security taxes on their wages?
That is the nature of the argument Steven B. Klinsky, the founder and chief executive officer of the private equity firm New Mountain Capital, gave in a NYT column in defense of the carried interest deduction. This deduction allows hedge fund and private equity fund mangers to pay taxes at the capital gains tax rate (20 percent) instead of the 39.6 percent tax rate they would pay on normal income.
Klinsky argues that this carried interest loophole really is no loophole at all:
“Let’s say a father and a son go into business together to buy the local lawn mowing company for $1,000. The father puts up the money and the son does all the work of having the idea, managing the partnership and so on. They agree to split the partnership’s future profit 80 percent for the father (as the passive, money limited partner) and 20 percent for the son (as the active, hands-on general partner). If years later, the partnership is sold for a profit, there would be long-term capital gain on that profit. The father would own 80 percent of the profit and pay 80 percent of the capital gains taxes. The son would own 20 percent of the profit and pay 20 percent of the capital gains taxes.”
See, when folks like Mitt Romney and Peter Peterson get hundreds of millions of dollars a year from their earnings as private equity fund managers it’s just the same as kid who goes into business with his father. There’s no reason these people should be taxed like ordinary workers.
As a practical matter, the relevant examples here are realtors, car salespeople, and other workers who get paid on a commission. In all these cases, workers’ pay depends on the profit to the owner of the business or the customer. In all of these cases, workers are taxed on their commissions in exactly the same way that other workers are taxed on salaries. This is really not a tough call. There is no reason for the I.R.S. to give workers a tax break just because they are paid on commission.
Apparently, Klinsky thinks that the rules that apply to ordinary workers shouldn’t apply to the very rich people who run private equity and hedge funds. At least, that is the only thing that we can reasonably infer from his argument.
Of course, the son in his case should, in principle, have to pay normal taxes on the earnings from his labor just as the kid mowing his dad’s lawn should in principle pay Social Security tax on his $10. However, because trivial sums are involved and the enforcement issue would be extremely difficult, we don’t worry about these cases. When some of the richest people in the country can get away with paying a lower tax rate than a school teacher or firefighter, it is something worth worrying about.
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An NYT article on insurers’ requests for higher premiums in the health care exchanges set up by the Affordable Care Act (ACA) might have misled readers about the reason that insurers face higher costs. The piece noted the request to the federal government for large increases in several states, ranging from 34 to 60 percent. It then quoted Gregory A. Thompson, a spokesman for Blue Cross and Blue Shield plans in five states.
“…the reason for the big rate requests was simple. ‘It’s underlying medical costs,’ he said. ‘That’s what makes up the insurance premium.'”
Insofar as insurers are seeing sharp increases in costs it is not due to rising health care costs in general. These have been rising relatively slowly. The Commerce Department reports that spending on health care services in nominal terms rose just 5.0 percent over the last year, only slightly faster than the growth in nominal GDP. (Prescription drugs spending rose at a somewhat more rapid 7.0 percent rate in the last year.)
The only plausible explanation for faster cost growth in the exchanges is that the people signing up for the exchanges are less healthy than the population as a whole. This has always been a problem with health care insurance. If only less healthy people sign up, it makes the insurance very expensive. This was the reason that the ACA requires people to buy insurance. (Bizarrely, this became know as the problem of “young invincibles,” implying that we needed young healthy people to sign up for the exchanges. Actually it is much more important to have older healthy people sign up for the exchanges, since they pay higher premiums and also have almost no costs.)
An NYT article on insurers’ requests for higher premiums in the health care exchanges set up by the Affordable Care Act (ACA) might have misled readers about the reason that insurers face higher costs. The piece noted the request to the federal government for large increases in several states, ranging from 34 to 60 percent. It then quoted Gregory A. Thompson, a spokesman for Blue Cross and Blue Shield plans in five states.
“…the reason for the big rate requests was simple. ‘It’s underlying medical costs,’ he said. ‘That’s what makes up the insurance premium.'”
Insofar as insurers are seeing sharp increases in costs it is not due to rising health care costs in general. These have been rising relatively slowly. The Commerce Department reports that spending on health care services in nominal terms rose just 5.0 percent over the last year, only slightly faster than the growth in nominal GDP. (Prescription drugs spending rose at a somewhat more rapid 7.0 percent rate in the last year.)
The only plausible explanation for faster cost growth in the exchanges is that the people signing up for the exchanges are less healthy than the population as a whole. This has always been a problem with health care insurance. If only less healthy people sign up, it makes the insurance very expensive. This was the reason that the ACA requires people to buy insurance. (Bizarrely, this became know as the problem of “young invincibles,” implying that we needed young healthy people to sign up for the exchanges. Actually it is much more important to have older healthy people sign up for the exchanges, since they pay higher premiums and also have almost no costs.)
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Sure, everyone knows that $1.3 billion is roughly 9.0 percent of the state’s $13.8 billion 2015 budget. That’s why the NYT never bothered to put this figure in any context for its readers in an article on how the state is dealing with a sharp falloff in oil revenue.
Sure, everyone knows that $1.3 billion is roughly 9.0 percent of the state’s $13.8 billion 2015 budget. That’s why the NYT never bothered to put this figure in any context for its readers in an article on how the state is dealing with a sharp falloff in oil revenue.
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The Fed rate hike gang got excited yesterday about the release of the June Consumer Price Index data. As the NYT reported, a 0.2 percent June rise in the core CPI took the year over year rate to 2.3 percent. That is slightly above the 2.0 percent target set by the Fed, although the Fed uses the core personal consumption expenditure index, which shows a 1.6 percent advance over the last year.
However even the CPI figure can be a bit deceiving. The shelter component (essentially rent and owners’ equivalent rent) accounts for over 40 percent of the core index. This component is the factor responsible for the modest increase in the core CPI in recent months. Excluding the shelter component the core CPI actually fell modestly from 1.6 percent to 1.4 percent over the prior twelve months.
Change in the Core CPI, Excluding Shelter Over Prior Twelve Months
Source: Bureau of Labor Statistics.
It is reasonable to exclude shelter when assessing patterns in inflation since its price follows a qualitatively different dynamic than most goods and services. Rent reflects supply and demand conditions in the housing market. The factor driving rent increases is an inadequate supply of housing.
While higher interest rates will in general be expected to dampen inflation by weakening the labor market and putting downward pressure on wages, this would not be the case with rents. Higher interest rates will slow construction and in this way make the shortage of housing worse. For this reason inflation caused by rising house costs would not be a good rationale for raising interest rates.
The piece also touted the Federal Reserve Board’s report of a 0.4 percent increase in manufacturing output for June. It is worth noting that this follows a reported decline of 0.3 percent in May. The Fed’s manufacturing index is still 0.2 percent below its February level so it is hard to make a case for robust growth in this sector.
The Fed rate hike gang got excited yesterday about the release of the June Consumer Price Index data. As the NYT reported, a 0.2 percent June rise in the core CPI took the year over year rate to 2.3 percent. That is slightly above the 2.0 percent target set by the Fed, although the Fed uses the core personal consumption expenditure index, which shows a 1.6 percent advance over the last year.
However even the CPI figure can be a bit deceiving. The shelter component (essentially rent and owners’ equivalent rent) accounts for over 40 percent of the core index. This component is the factor responsible for the modest increase in the core CPI in recent months. Excluding the shelter component the core CPI actually fell modestly from 1.6 percent to 1.4 percent over the prior twelve months.
Change in the Core CPI, Excluding Shelter Over Prior Twelve Months
Source: Bureau of Labor Statistics.
It is reasonable to exclude shelter when assessing patterns in inflation since its price follows a qualitatively different dynamic than most goods and services. Rent reflects supply and demand conditions in the housing market. The factor driving rent increases is an inadequate supply of housing.
While higher interest rates will in general be expected to dampen inflation by weakening the labor market and putting downward pressure on wages, this would not be the case with rents. Higher interest rates will slow construction and in this way make the shortage of housing worse. For this reason inflation caused by rising house costs would not be a good rationale for raising interest rates.
The piece also touted the Federal Reserve Board’s report of a 0.4 percent increase in manufacturing output for June. It is worth noting that this follows a reported decline of 0.3 percent in May. The Fed’s manufacturing index is still 0.2 percent below its February level so it is hard to make a case for robust growth in this sector.
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The Washington Post reported on new projections on national health care spending by the Centers for Medicare and Medicaid Services (CMS). The projections are that health care costs will outpace the growth of the economy, rising from the current 17 percent of GDP to 20 percent by 2025. It then provides readers with a warning from Katherine Hempstead, a researcher at the Robert Wood Johnson Foundation:
“Even under the rather optimistic assumption that health care spending grow no more quickly than the economy itself; we will, before long, be forced to choose between an unpleasant combination of significant tax increases and/or cuts in defense and non-health spending.”
(I believe Hempstead is referring to age-adjusted spending. Per capita spending is virtually certain to rise relative to per capita income, due to population aging.)
There are three points worth noting on these projections. First, the CMS projections have been notoriously inaccurate in the past. In the 1990s, health care spending was projected to be more than 25 percent of GDP by 2030. This doesn’t mean the most recent projections will be wrong, but people should know they are highly uncertain.
The second point is that U.S. costs are already hugely out of line with costs in other wealthy countries with no obvious benefits in terms of outcomes. We currently pay more than twice as much per person for our health care as people in other wealthy countries yet rank near the bottom in life expectancy.
As our costs grow further relative to costs in other countries, it will require a strengthening of protectionist measures to sustain this growing gap. In other words, there are huge potential savings from people receiving health care in other countries. (Also, there would be enormous savings from allowing adequately trained foreign doctors to practice in the United States.) If the protectionists ever lose their control of national policy we could see a sharp drop in costs from opening up to trade in health care services. (The potential savings would more than an order of magnitude larger than even the most optimistic projections of gains from the Trans-Pacific Partnership.)
The third point is that the U.S. economy has suffered from a shortfall in demand ever since the collapse of the housing bubble. If this “secular stagnation” continues, then we will not need tax increases and/or spending cuts to pay for health care. If we face a shortfall in demand then we can simply finance additional health care spending with deficits. In the context of an underemployed economy, this will boost growth and create jobs.
The Washington Post reported on new projections on national health care spending by the Centers for Medicare and Medicaid Services (CMS). The projections are that health care costs will outpace the growth of the economy, rising from the current 17 percent of GDP to 20 percent by 2025. It then provides readers with a warning from Katherine Hempstead, a researcher at the Robert Wood Johnson Foundation:
“Even under the rather optimistic assumption that health care spending grow no more quickly than the economy itself; we will, before long, be forced to choose between an unpleasant combination of significant tax increases and/or cuts in defense and non-health spending.”
(I believe Hempstead is referring to age-adjusted spending. Per capita spending is virtually certain to rise relative to per capita income, due to population aging.)
There are three points worth noting on these projections. First, the CMS projections have been notoriously inaccurate in the past. In the 1990s, health care spending was projected to be more than 25 percent of GDP by 2030. This doesn’t mean the most recent projections will be wrong, but people should know they are highly uncertain.
The second point is that U.S. costs are already hugely out of line with costs in other wealthy countries with no obvious benefits in terms of outcomes. We currently pay more than twice as much per person for our health care as people in other wealthy countries yet rank near the bottom in life expectancy.
As our costs grow further relative to costs in other countries, it will require a strengthening of protectionist measures to sustain this growing gap. In other words, there are huge potential savings from people receiving health care in other countries. (Also, there would be enormous savings from allowing adequately trained foreign doctors to practice in the United States.) If the protectionists ever lose their control of national policy we could see a sharp drop in costs from opening up to trade in health care services. (The potential savings would more than an order of magnitude larger than even the most optimistic projections of gains from the Trans-Pacific Partnership.)
The third point is that the U.S. economy has suffered from a shortfall in demand ever since the collapse of the housing bubble. If this “secular stagnation” continues, then we will not need tax increases and/or spending cuts to pay for health care. If we face a shortfall in demand then we can simply finance additional health care spending with deficits. In the context of an underemployed economy, this will boost growth and create jobs.
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Bloomberg is really pushing the frontiers in journalism. In order to give readers a balanced account of a proposal by Representative Peter DeFazio to impose a 0.03 percent tax on financial transactions (that’s 3 cents on every hundred dollars) it went to the spokesperson for the Investment Company Institute, the chief investment officer from Vanguard, and an academic with extensive ties to the financial industry. It also presented an assertion on the savings from electronic trading from Markit Ltd. Based on this diverse range of sources, Bloomberg ran a headline:
“Democrats assail Wall Street with plan that may hit mom and pop.”
If Bloomberg was interested in views other than those from the financial industry, it might have found some people who supported the tax to provide comments for the article. Or, it might have tried some basic arithmetic itself.
Most research finds that trading is price elastic, meaning that the percentage change in trading in response to a tax is larger than the percentage increase in trading costs that result from the tax. The non-partisan Tax Policy Center assumed an elasticity of -1.25 in its analysis of financial transactions taxes.
This means that it the tax proposed by DeFazio would raise the cost of trading by 20 percent, then trading volume would decline by 1.25 times as much, or 25 percent. Investors would pay 20 percent more on each trade, but would be trading 25 percent less. This means that their trading costs would actually fall as a result of the tax. (With trading at 75 percent of the previous level, but the per trade cost at 120 percent of the previous level, the total cost of trading would be 90 percent of the prior level.)
The only way “mom and pop” get hurt in this story is if they make money on average on their trades. That is a hard story to tell. If mom and pop are lucky and sell their stock when it is high then some other mom and pop are unlucky and buy the stock when it is over-valued. As a general rule, trading will end up being a wash. (If we stopped trading altogether that would be a problem, but the taxes on the table would just raise costs to where they were 10 or 20 years ago.)
Of course there is someone that gets hurt by less trading — the folks who were making money on the trades — that’s right the financial industry. So, Bloomberg’s sources could expect to take a huge hit if Congress were to pass a tax like the one proposed by Mr. DeFazio. Based on the elasticity figure used by the Tax Policy Center and the revenue estimate from the Joint Tax Committee, DeFazio’s proposed tax would cost the financial industry more than $50 billion a year. Since it may not sound very compelling to hear a multi-millionaire complain about the prospect of a pay cut, it sounds much better to make up a story about mom and pop investors.
Bloomberg is really pushing the frontiers in journalism. In order to give readers a balanced account of a proposal by Representative Peter DeFazio to impose a 0.03 percent tax on financial transactions (that’s 3 cents on every hundred dollars) it went to the spokesperson for the Investment Company Institute, the chief investment officer from Vanguard, and an academic with extensive ties to the financial industry. It also presented an assertion on the savings from electronic trading from Markit Ltd. Based on this diverse range of sources, Bloomberg ran a headline:
“Democrats assail Wall Street with plan that may hit mom and pop.”
If Bloomberg was interested in views other than those from the financial industry, it might have found some people who supported the tax to provide comments for the article. Or, it might have tried some basic arithmetic itself.
Most research finds that trading is price elastic, meaning that the percentage change in trading in response to a tax is larger than the percentage increase in trading costs that result from the tax. The non-partisan Tax Policy Center assumed an elasticity of -1.25 in its analysis of financial transactions taxes.
This means that it the tax proposed by DeFazio would raise the cost of trading by 20 percent, then trading volume would decline by 1.25 times as much, or 25 percent. Investors would pay 20 percent more on each trade, but would be trading 25 percent less. This means that their trading costs would actually fall as a result of the tax. (With trading at 75 percent of the previous level, but the per trade cost at 120 percent of the previous level, the total cost of trading would be 90 percent of the prior level.)
The only way “mom and pop” get hurt in this story is if they make money on average on their trades. That is a hard story to tell. If mom and pop are lucky and sell their stock when it is high then some other mom and pop are unlucky and buy the stock when it is over-valued. As a general rule, trading will end up being a wash. (If we stopped trading altogether that would be a problem, but the taxes on the table would just raise costs to where they were 10 or 20 years ago.)
Of course there is someone that gets hurt by less trading — the folks who were making money on the trades — that’s right the financial industry. So, Bloomberg’s sources could expect to take a huge hit if Congress were to pass a tax like the one proposed by Mr. DeFazio. Based on the elasticity figure used by the Tax Policy Center and the revenue estimate from the Joint Tax Committee, DeFazio’s proposed tax would cost the financial industry more than $50 billion a year. Since it may not sound very compelling to hear a multi-millionaire complain about the prospect of a pay cut, it sounds much better to make up a story about mom and pop investors.
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